There has been a significant rise in the number of large defined contribution (DC) schemes using a mix of active and passive management in their default funds, according to research from Barnett Waddingham.

In its autumn 2023 analysis of large defined contribution (DC) pension schemes, the consultancy reported that trustees are increasingly using passive investments with a quasi-active or short-term tactical overlay in default strategies.

The belief among governance committees that some level of active management is worth the risk resulted in a two-thirds of the 65 large DC schemes analysed by Barnett Waddingham employing some form of active investment management within defaults.

According to the same research conducted last year, only bespoke investment solutions used passive investments with a quasi-active or short-term tactical overlay.

In addition to this, the consultancy confirmed that master trust consolidation has slowed down. This may, it said, be down in in some part to 2022 and 2023's volatile investment markets.

The research suggested that many trustee boards held back on significant changes in the early part of 2022 due to the Russia-Ukraine conflict, although later in 2022, they were pushed into a cautious position by the September gilt crisis and rising interest rates.

In addition, as noted in the consultancy's previous DC report, master trusts are being used not just as a consolidation vehicle for small sub-£100m DC arrangements but also to provide pensions for some significant workforces.

There has also been a significant increase in the services being provided by own-trust schemes in supporting members at retirement.

"We can see from the data set this year and, in our experience directly with clients, the vast improvement in the support being offered to members at retirement," the report stated.

"The number of own-trust schemes where they have now aligned with a bolt-on master trust has increased by 75 per cent, with the number offering support via an independent service doubling.

"For some own-trust trustee boards the steps of a bolt-on master trust may be the first in the direction of a full transition to master trust in the future.

"This dramatic increase is reassuring that those who manage pension arrangements are stepping up to ensure members are not just looked after to the point of retirement, but ongoing through the final leg of the journey at a time when they may be most vulnerable to exposure to cost of living variations, with little or no scope for increasing income
from other sources."

Other findings included member charges reducing within default investment strategies, and a general correlation between average member fund size and default pricing.

According to Barnett Waddingham, it looked at a data set made up of 52.3 per cent of schemes with assets under £1bn; 32.3 percent with assets of between £1bn and £2bn , and approximately 15.4 percent with assets above £2bn.

The largest scheme included in its research this year had assets of between £4bn and £5bn, compared with the largest scheme in its 2022 research being valued at £3.1bn.

Of the 10 largest schemes in the survey only one was a master trust section, with the other nine being own-trust (seven unbundled and two bundled).

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